IP Law Daily, TRADE SECRETS—5th Cir.: $3 million jury damages award affirmed in resume database trade secret dispute, (Sep 1, 2022)

By Kevin M. Finson, J.D.

A trial judge did not err in sending a trade secrets claim to the jury because there was evidence in the record from which a reasonable jury could find that the claimed secrets existed and that reasonable means were used to protect them.

Trade secrets claims relating to the hacking of a computer database by the prior owner of the database were properly presented to the jury, the U.S. Court of Appeals for the Fifth Circuit has held. The claimed secrets were within the statutory definition of the Texas Uniform Trade Secrets Act and there was evidence that the owner had taken reasonable steps to protect them (DHI Group, Inc. v. Kent, August 30, 2022, per curiam).

David Kent was the founder of Rigzone.com, Inc. (Rigzone), a company which operated a website providing access to a compilation of resumes belonging to job-seekers in the oil and gas industry. Kent sold Rigzone to DHI Group, Inc. (DHI) and then created a new company, Single Integrated Operations Portal, Inc. (Oilpro). After the sale, Kent gained unauthorized access to the Rigzone database and stole the collection of resumes. Kent was criminally charged and pled guilty to violation of the Computer Fraud and Abuse Act, sentenced to prison time, and paid approximately $3.3 million in restitution. While the criminal case was pending, DHI and Rigzone filed suit against Kent and Oilpro for violation of the Texas Uniform Trade Secrets Act (TUTSA), the Texas Theft Liability Act (TTLA), the Racketeer Influenced and Corrupt Organizations Act (RICO), and related claims. The plaintiffs eventually conceded that their TTLA claim was preempted by the TUTSA.

The jury found violations of: (1) TUTSA, awarding approximately $3 million in damages to Rigzone and nothing to DHI; and (2) Texas common law for the misappropriation of confidential information, awarding approximately $2.5 million in damages. The jury also found a (3) violation of RICO and (4) breach of a fiduciary duty but did not award damages as to either claim. As for the remaining claims, the jury found in Kent’s favor as to the CFAA claim and in Plaintiffs’ favor on all of Oilpro’s counterclaims. The district court awarded damages of $3 million for the TUTSA violation. The district court did not appear to award the plaintiffs any damages on the common law misappropriation claim, and plaintiffs conceded it was likely preempted by TUTSA. Both parties appealed.

Trade secrets. The parties disputed whether there was sufficient evidence of a trade secret to go to the jury. Kent argued that the stolen resumes derived their value from being shared, not from being kept secret. The appellate court held that a compilation of such documents had value, arising from the fact that DHI could sell access to the collection for a fee. Kent also argued that Rigzone and DHI failed to take reasonable measures to protect the claimed secrets. The court reviewed the evidence and found that access was only given to users who signed a contract under which they agreed to follow the website terms of service. Those terms of service prohibited unauthorized disclosure. That was enough to support the trial court’s determination of reasonableness. The damage award was challenged as a double recovery, in which DHI received $3.3 million in criminal restitution and then the jury awarded $3 million to Rigzone. The Fifth Circuit held that this was not a double recovery because DHI and Rigzone were separate entities and were treated as such in the jury’s verdict.

RICO claim. DHI and Rigzone argued that the trial court erred in failing to award attorney fees after the jury found that Kent had violated the Racketeer Influenced and Corrupt Organizations Act (RICO). While the award of fees was mandatory in a RICO case, the court held that the mandatory award was triggered by a showing of damages attributable to the RICO violation. In this case, there was no evidence to show damages arising from the RICO violation, so the trial court did not err in declining to award attorney fees.

The case is No. 21-20274.

Attorneys: Walter Lynch (Jordan, Lynch & Cancienne PLLC) for DHI Group, Inc. James George Munisteri (Foley & Lardner LLP) for David W. Kent, Jr.

Companies: DHI Group, Inc.

Cases: TradeSecrets LouisianaNews MississippiNews TexasNews